In today’s difficult real estate market, sometimes a short sale is the best option for a homeowner. You’ve already tried a loan modification and that didn’t work for you. Or you need to move but can’t afford to sell the house because you owe more than it’s worth. And your financial state is such that you can’t bring money to the table to sell the house… or you can’t do the necessary repairs and maintenance anymore, you need to sell your house for less than you owe on it and get the bank to accept that amount as payment in full.
Sometimes you won’t qualify for a short sale. For instance, if the house is worth less than the mortgage, the bank is unlikely to accept less than what you owe on it because you can sell the house and cover the mortgage. Or if you have a ton of money in your bank accounts, the mortgage holder is not going to look kindly on your application for a short sale. They will expect you to come up with the difference to sell it.
So, if you likely qualify for a short sale, here is what you can expect from the process:
1. It will take time. Short sales take longer than regular sales because we have to negotiate with the bank to get them to accept less than you owe on the house. Some banks work much more quickly than others. However, many are notorious for taking months to even assign a processor to the file.
2. You will have to prove your financial hardship to the bank. The bank basically requests all the documentation that they wanted when you got your loan – only this time, you are proving to them that you can’t afford it anymore.
3. Once the bank decides that your financial hardship qualifies you to participate in the short sale process, they will order a broker’s price opinion or an appraisal on your house. They want to be sure that the house is actually worth less than what you owe on it.
4. You might need to continue to give the bank updated documentation and they might send you other documents to sign during the process.
5. The bank will either accept the offer, reject the offer or make a counter offer on the sales contract. You need to have a sales contract on your house in order to start the short sales negotiation process. Because it can take so long, it’s often a good idea to work with an investor. People who don’t understand the process, like first time homebuyers will often back out because of the time.
6. If the offer is not accepted, you must negotiate with the bank and with the buyer (unless you are working with an investor who will take care of all this) to get their prices aligned.
7. When a short sale is accepted by the bank, your buyer must close within 30 days of the acceptance letter.
8. If you are in the foreclosure process, you must keep on top of the bank to ensure that your house does not get sold on the sheriff’s steps while you are trying to work out a short sale.
When you are working with a Realtor to get a short sale accepted, there is about a 5% acceptance rate. Realtors can’t start the short sale process until they have a contract on the house. Buyer brokers do not like to show houses that are in the process of a short sale because they know that they are likely to lose a buyer who is ready to go if that buyer has to wait for the short sale to be processed. And if they lose buyers, they can’t feed their own families. And Realtors don’t necessarily enjoy spending hours on the phone with banks negotiating a short sale when they could go sell the house down the street and make the same money for a lot less effort. Very few Realtors are actually trained to work short sales because, frankly, it’s just not as profitable to them as working normal house sales.
When you work with an investor who specializes in short sales, that investor will put your house under contract right away. They will work with you to get the paperwork package together for the bank. They, or someone on their team who specializes in short sale negotiations, will spend hours on the phone with banks checking up and following up on your file. They will also do their best to ensure that if you are in foreclosure your house does not get sold before the short sale is completed. When the short sale is accepted, the investor already has money lined up to purchase your house so it will not fall out of contract.
So, your short sale is much more likely to be completed if you are working with an investor who specializes in short sales, than if you are working with a Realtor who would rather just be able to list the house and find a buyer without having to deal with the headaches that come with short sales.
Millionaire In Training, MMMChallenge.com